Saturday, January 31, 2009

Disaster Profits

The record breaking profits of oil companies are continuing in the worst of times. Having created a system that relies on their product partly by undermining competition from mass transportation projects like D.C.'s trolley system, the oil companies have a stranglehold on the U.S. The worst aspect of the situation was experienced all to recently as prices soared to $4 a gallon, and many workers had to go into debt to make the adjustment in their budgets.

While the real estate bubble that burst made a huge mess financially for many, a large proportion of the working population had already become strapped, and many indebted, by jacked-up oil prices that also bled into grocery prices and prices of everything that had to be transported. Trucking companies and truckers were particularly stressed by the huge hikes in the gas essential to their operation.

The maligned American consumer went into debt to keep from going hungry and giving up a job, for the most part. All the grief the consumer is getting now for feckless behavior was greatly forced on him/her by oil prices.

Now it's hard to celebrate when one of the few industries that has kept profits in its operation has more profit to report.

Despite collapsing oil prices in recent months, Exxon Mobil, the world’s largest publicly traded oil company, still managed to set a record for last year as the most profitable American corporation ever.

Exxon earned $45.2 billion in 2008, beating the record it set in 2007 for most profitable corporation, at $40.6 billion. That came despite a fourth quarter in which income fell 33 percent, owing to the steepest drop ever in oil prices, as the economy went into a tailspin.

After riding a tide of swelling earnings in recent years, the once high-flying oil sector is scrambling to adjust to a sharp downturn. Oil consumption is falling in all major developed nations as economies shrink and consumers cut back on spending.

As a result, oil prices have dropped more than 70 percent since peaking above $145 a barrel in July. On Friday, they traded at about $42 a barrel.

Because of its close attention to cost reduction and efficiency, Exxon is weathering the drop in oil prices better than most rivals. As most companies trim spending and scale back some operations, Exxon signaled it would stick with its strategy.

More than any other oil company, managers at Exxon emphasize a strict attention to containing costs, and are disciplined about their investments. As a result, the company manages to extract more dollars than its rivals out of each barrel that it pumps or refines.

The method has served the company well when times were good, and is likely to provide some shelter in a long downturn, analysts said.

The company has more than $30 billion in cash that could provide it with a strategic war chest to make acquisitions, according to analysts. Many have forecast a wave of buyouts in the sector as companies struggle to finance their projects or even to survive.
On Friday, the company signaled that its share buyback program, which totaled $8 billion in the fourth quarter, would be trimmed slightly to $7 billion in the first quarter of 2009.

Exxon pumped about 2.47 million barrels of oil a day in the fourth quarter and produced 9.8 billion cubic feet of natural gas a day. Over all, oil and gas production decreased 3 percent in the fourth quarter, compared with the year-earlier period. (In some countries, Exxon is entitled to fewer barrels of oil when prices rise.)

The company started eight major projects last year, including Thunder Horse, a huge offshore platform in the Gulf of Mexico.

Why would anyone expect that the huge tax breaks the oil companies have been handed by a congress dominated by right wingers go unmentioned in the company's announcement? The use of public lands without paying taxpayers for leases also just didn't make the cut.

It is past time for the U.S. to end the obscene profits of oil companies that give nothing back to the consumer. Solar and wind energy, clean in so many ways, will be part of a welcome solution to the problems the oil companies have created.

Pollution has damaged the world in several ways, air, land and water pollution are symbolic of the Eat the Poor practices that oil companies find desirable. Humankind will be much better off when the reign of Big Oil is over.

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